Cenovus Energy to sell royalty portfolio to Ontario Teachers' for $2.66 bn

Cenovus Energy Inc. yesterday struck a deal to sell its wholly-owned subsidiary Heritage Royalty Limited Partnership (HRP) to Ontario Teachers' Pension Plan (OTTP) for $3.3 billion.

HRP holds approximately 4.8 million gross acres of royalty interest and mineral fee title lands in Alberta, Saskatchewan and Manitoba.

In the first quarter of 2015, HRP had third-party royalty interest of approximately 7,800 barrels of oil equivalent per day (BOE/d). It received additional royalties on its working interest production of 5,400 BOE/d, as well as a Gross Overriding Royalty on its Pelican Lake heavy oil property in northern Alberta and its enhanced oil recovery project in Weyburn, Saskatchewan, with first quarter volumes of 1,600 BOE/d.

''We believe this agreement captures significant value for Cenovus shareholders from our royalty and fee lands business,'' said Brian Ferguson, Cenovus president & CEO. ''The proceeds from this sale will strengthen our balance sheet and provide us with greater resilience during these uncertain times as well as the flexibility to invest in organic projects with strong returns.''

Cenovus said that its decision to sell HRP to Teachers' was the outcome of a marketing process that attracted significant interest.

The company considered several alternatives to generate value from the business, including a potential initial public offering.

''After a thorough review, the transaction with Teachers' was determined to be the best alternative to maximize value for Cenovus shareholders,'' it said in a statement.

Cenovus is a Canadian integrated oil company, whose operations include oil sands projects in northern Alberta and natural gas and oil production in Alberta and Saskatchewan.

The company, which has a market cap of $22 billion, also holds a 50-per cent stake in two US refineries.